South Korea's recent local real estate market boom has been largely driven by a government policy to ease bank loan regulations, a report by a state-run think tank said Wednesday.
Housing construction in the country has been accelerating for more than a year since the government lowered a set of financial regulations on home-backed household debts -- the debt-to-income (DTI) and loan-to-value (LTV) ratios -- in August 2014.
As a result, new construction permits had grown for 16 months in a row until April this year on the back of rising demand for residential houses, despite the tepid growth Asia's fourth-largest economy has been experiencing throughout the year.
For the first six months, the South Korean economy expanded 3 percent, with housing construction contributing 1 percentage point to the entire growth.
The Korea Development Institute (KDI) said in its latest report that the correlation between economic growth and housing contribution diminished in recent months. Instead, local banks' household loan policies have had a greater influence on the up-and-down of the property market.
"Banks' lending attitudes towards households have now become more relevant to changes in housing starts and gross domestic income," the think tank said. "The rapid growth ... is more connected to the easing of banks' lending attitudes towards households following the launch of policy measures aimed at boosting the real estate market."
According to separate data, South Korea's household credit topped a record 1,300 trillion won on the back of the housing market boom and low borrowing costs, raising concerns that the mounting household debts would pose a major threat to the economy.
The financial authorities came up with measures to tighten the bank lending in a bid to cool down the overheated market and tackle the rapidly increasing household loans.
The think tank expected that housing construction will slow down in 2017, dragging down all economic growth by 0.4-0.5 percentage point.
"The recent surge in housing construction on mounting mortgage debt implies that the expected returns are low in production-related sectors," said the KDI report. "Policy efforts that strengthen the efficiency of the Korean economy, such as restructuring insolvent companies and enhancing labor market flexibility, are needed more than short-term stimulus packages." (Yonhap)
